<PAGE>
Annual Report
December 31, 1998
LaSalle Partners
U.S. Real Estate Fund
LaSalle Partners
Master Trust
[LOGO OF LASALLE PARTNERS FUNDS APPEARS HERE]
Global Leadership in the New World of Real Estate(SM)
<PAGE>
LaSalle Partners Master Trust
LaSalle Partners U.S. Real Estate Fund
Annual Report - December 31, 1998
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report Highlights........................................................ 1
Letter To Shareholders................................................... 2
LaSalle Partners Master Trust - U.S. Real Estate Portfolio
Statement of Net Assets................................................ 8
Statement of Operations................................................ 10
Statement of Changes in Net Assets..................................... 11
Financial Highlights................................................... 12
Notes to Financial Statements.......................................... 13
Report of Independent Accountants...................................... 15
LaSalle Partners Funds, Inc. - LaSalle Partners U.S. Real Estate Fund
Statement of Assets and Liabilities.................................... 16
Statement of Operations................................................ 17
Statement of Changes in Net Assets..................................... 18
Financial Highlights................................................... 19
Notes to Financial Statements.......................................... 20
Report of Independent Accountants...................................... 23
</TABLE>
<PAGE>
LA SALLE PARTNERS U.S. REAL ESTATE FUND
ANNUAL REPORT
DECEMBER 31, 1998
Report Highlights
. 1998 was a difficult year for REITS and for the Fund. The Fund began
operations at the end of March. During this period of operations, the
Fund's return was -19.9% and the return on the Wilshire Real Estate
Securities Index was -16.6% for the comparable period.
. As the real estate market transitioned from the recovery to the equilibrium
phase, growth and momentum investors concluded the real estate recovery was
over and exited the REIT sector. This change in sentiment, and the speed at
which these investors exited the market, led to price declines more severe
than the changes in the underlying fundamentals warranted.
. The price declines experienced by the REITs in 1998 only make sense in the
wake of a serious real estate recession, combining substantial overbuilding
with weakened demand caused by a general economic recession.
. On the contrary, LaSalle Partners Real Estate Securities' research
indicates that 1999 and 2000 should be years of favorable real estate
fundamentals, with most markets at equilibrium and strong (8% to 11%)
earnings growth for the real estate companies.
. Over the longer term, now that REIT stock prices have returned to levels
that are close to net asset value, REITs should resume their traditional
role of offering high current yields, consistent moderate growth, and lower
volatility than the general stock market.
. As a result, we believe now is the time to be an aggressive buyer of REITs.
1
<PAGE>
Dear Shareholder:
The LaSalle Partners U.S. Real Estate Fund seeks total return primarily through
investments in U.S. real estate securities. The Fund seeks to achieve its
investment objective by investing all of its investable assets in the U.S. Real
Estate Portfolio of LaSalle Partners Master Trust, which is a separate mutual
fund with an identical investment objective managed by LaSalle Partners Real
Estate Securities.
LaSalle Partners Real Estate Securities has more than a dozen professionals
dedicated solely to investing in public real-estate securities. Its management
team brings direct operating experience in property development, management,
investment and finance, as well as more than a decade of successful real estate
portfolio management experience, to its efforts on behalf of your Fund.
FUND PERFORMANCE
The LaSalle Partners U.S. Real Estate Fund's performance since its commencement
of operations on March 30, 1998.
Total Return Performance
The following graph represents the total return based on $10,000 investment made
in the LaSalle Partners U.S. Real Estate Fund at the trading commencement date
of March 30, 1998 and held through December 31, 1998 as well as the performance
of the Wilshire Real Estate Securities Index over the same period. Past
performance is not predictive of future performance.
[CHART APPEARS HERE]
- --------------------------------------------------------------------------------
LaSalle Partners LaSalle Partners
US Real Estate Fund - US Real Estate Fund - Wilshire Real Estate
Institutional Class Retail Class Securities Index
- --------------------------------------------------------------------------------
3/30/98 10000 10000 10000
6/30/98 9520 9440 9540
9/30/98 8102 8025 8405
12/31/98 8008 7980 8340
---------------------------------------------------------------------
Since Commencement
of Operations
Total Return March 30, 1998
------------ --------------
LaSalle Partners U.S. Real Estate Fund -
Institutional Class (19.9%)
LaSalle Partners U.S. Real Estate Fund -
Retail Class (20.2%)
---------------------------------------------------------------------
On December 31, 1998, the net asset value (NAV) was $7.76 per Class A share and
$7.77 per Class B share. In addition, three dividends were paid in 1998,
totaling $0.25 per Class A share and $0.22 per Class B share.
1998 was an unusual and disappointing year for REIT stocks. REIT earnings were
up a record 15% and their stocks were down 23%. Investors (particularly non-real
estate growth and momentum investors) abandoned the
2
<PAGE>
sector in 1998 because of concerns about overbuilding, reduced demand for space,
and lower earnings growth in 1999. In our view, all of these concerns were
overblown.
The results for the Fund were also disappointing, on both an absolute and
relative basis. This primarily was a result of our emphasis on the larger,
higher growth companies that underperformed the index. This was due, in part,
because of the ownership by broad market investors who abandoned the sector in
1998. This withdrawal occurred despite strong operating results.
MARKET COMMENTARY
While 1998 was the best year ever for REIT earnings growth, it turned into the
worst year since 1974 for REIT price performance, and the worst year ever in
performance relative to the broad market. In our view, 1998's poor performance
was due to four principal factors:
. The continuing bull market for large cap and high tech stocks drew broad-
market investors away from REITs, which are normally viewed as small cap
companies and defensive stocks. Most money that remained defensive went to
the tried-and-true utility sector. The larger real estate mutual funds were
selling REITs to meet redemptions virtually the entire year.
. Regulatory changes derailed the high-growth paired-share REITs and, in the
process, created tremendous confusion and uncertainty regarding the
regulatory environment for REITs. Many investors inappropriately
interpreted the regulatory changes as having negative economic implications
for the overall REIT industry.
. Cyclical concerns arose that real estate companies would repeat the
development excesses of earlier real estate boom and bust cycles, or chase
acquisitions for their own sake. Cap rate declines early in the year made
growth by acquisition much more difficult.
. Later in the year, concerns surfaced that lack of capital would keep many
companies from executing their growth plans (with only limited
understanding that restricted capital would itself reduce potential
cyclical excesses).
RELATIVE VALUATION
Strong fundamental results combined with poor price performance has created a
situation where relative REIT valuations are extraordinarily attractive. A 15%
earnings gain, coupled with a performance disadvantage of more than 40% compared
to the S&P 500, has created the deepest valuation discount for the real estate
sector we have ever seen.
REIT VALUATION VS. S&P 500
- --------------------------------------------------------------------------------
At 12/31/97 At 12/31/98
------------------- -------------------
S&P 500 REITS S&P 500 REITS
------- ------ ------- ------
Forward Multiple 20.0x 11.8x 23.9x 8.9x
Forward Earnings Growth Est. 7.8% 19.9% 4.3% 12.4%
- --------------------------------------------------------------------------------
Source: ABKB/La Salle Securities
Note: Earnings growth for REITS is weighted average funds from operation
("FFO")/share growth.
Broad market investors continue to drive the largest S&P companies and certain
super-growth stories to unprecedented levels of valuation, while REIT multiples
are at the lowest level in the past 12 years.
3
<PAGE>
REIT FFO vs. S&P
LABEL A B
- ----------------------------------------------------
LABEL S&P 500 Price /4 Quarter
- ----------------------------------------------------
1 Q1 86 14.61 14.00
2 Q2 86 15.20 14.85
3 Q3 14.02 15.14
4 Q4 14.68 14.97
5 Q1 87 17.26 16.28
6 Q2 87 17.52 16.66
7 Q3 17.26 15.03
8 Q4 12.61 12.78
9 Q1 88 12.51 13.51
10 Q2 88 12.18 13.53
11 Q3 11.61 13.52
12 Q4 11.34 14.14
13 Q1 89 11.52 13.96
14 Q2 89 12.18 14.60
15 Q3 13.53 14.47
16 Q4 13.67 14.82
17 Q1 90 13.54 13.61
18 Q2 90 14.32 13.37
19 Q3 12.24 10.52
20 Q4 13.34 12.06
21 Q1 91 15.47 12.80
22 Q2 91 15.96 12.32
23 Q3 17.01 12.98
24 Q4 18.79 14.64
25 Q1 92 17.86 12.96
26 Q2 92 17.44 12.95
27 Q3 17.55 13.78
28 Q4 17.68 13.98
29 Q1 93 17.89 15.30
30 Q2 93 17.33 14.35
31 Q3 16.90 14.74
32 Q4 94 16.37 12.54
33 Q1 94 15.20 12.28
34 Q2 94 14.69 12.08
35 Q3 14.78 11.43
36 Q4 13.92 11.30
37 Q1 95 13.92 10.87
38 Q2 95 14.50 11.10
39 Q3 15.07 11.22
40 Q4 15.88 11.36
41 Q1 96 15.36 11.27
42 Q2 96 15.62 11.40
43 Q3 15.50 11.78
44 Q4 17.40 13.70
45 Q1 97 15.11 12.55
46 Q2 97 18.83 12.91
47 Q3 20.15 13.65
48 Q4 20.90 13.11
49 Q1 98 21.60 12.20
50 Q2 98 21.98 10.30
51 Q3 19.94 9.90
52 Q4 23.87 8.90
Source: Goldman Sachs
The large spread between REIT FFO multiples and S&P 500 PE multiples has
developed since early 1997. Even if the multiples for the two groups remain
stable from this point, we believe REITS should outperform due to their superior
near term growth rate. In fact, while it is impossible to predict the month when
sentiment toward REITS will change, we believe it will. If REITs continue to
turn in stable growth in 1999, these companies should expect to rally later in
the year.
REAL ESTATE FUNDAMENTALS
For most segments of the real estate business, the past several years have been
a period of cyclical recovery from the depression levels of the early 1990s.
While most property types and markets have now moved into equilibrium, it
appears that a dynamic equilibrium will continue for some time. We do not
anticipate a significant deterioration in fundamentals in the foreseeable
future.
PRIVATE REAL ESTATE RETURNS
- ----------------------------------------------------
Last Next
Avg. Returns 3 years 3 Years
- ------------ ------- ------------
Office 15.5% 10%-12%
Industrial 15.3% 9%-11%
Apartment 12.5% 9%-11%
Lodging 27.0% 10%-14%
Mall Retail 6.2% 5%-7%
Strip Retail 8.9% 7%-9%
- ----------------------------------------------------
Source: LaSalle Advisors Investment Research
The office market is now in balance nationally, with properties in select
central business districts ("CBDs") in the best position to increase their cash
flows and values. There may be some excess building in certain suburban sub-
markets, but this overbuilding is mostly in markets with strong secular
employment growth, and should not cause significant declines in rents and
occupancies. The recent real estate capital markets' disarray has helped limit
new supply going forward.
Office demand is likely to be reasonable but not record-breaking. Taking supply
and demand into account, we expect market rents to rise with inflation, which
will often result in above-inflation increases in net operating income ("NOI"),
since a number of properties still have significant built in growth as leases
roll over.
4
<PAGE>
The industrial market continues in equilibrium. Although we expect supply to
slightly outpace absorption in 1999, we anticipate that market rental growth
will equal inflation.
1998 was a good year in terms of fundamentals in the retail industry. Consumer
confidence was robust and retail sales growth outpaced inflation. The pace of
new supply of product slowed and the market moved towards equilibrium, reversing
a trend of increasing over-supply which has persisted for the last several
years. These positive indicators translated into solid internal growth for many
properties, which enjoyed increases in occupancy and rising rental rates.
Stability continued to be the theme in the apartment industry in 1998.
Properties maintained strong internal operating results due to both revenue
gains in excess of inflation and lower or flat operating expenses. Occupancies
were high across the nation as well, with strong demand growth despite a booming
single-family market.
Stability should continue in the apartment sector, with solid demographic growth
assured for a number of years. Despite supply concerns in some markets, most
markets will be in equilibrium. In addition, we expect new supply to be
sensitive to expected demand, as capital is constrained in the public debt and
equity markets. Internal growth should exceed inflation, and occupancies should
remain stable.
The lodging business has been in flux over the last year or so, with mergers and
structural changes creating a new competitive environment with new strong - and
not so strong - lodging owners and operators. These changes have overshadowed
the excellent operating results achieved in 1998. Although we may see some
reductions in occupancies and in the growth of room rates, the best earnings
potential continues to be upscale and luxury hotels in the major central
business districts, where demand is strong and supply constrained.
NET ASSET VALUE AND COMPANY VALUE
REITs are, at their core, a collection of tangible assets with value as a
portfolio of properties. At various times in a real estate cycle, public
companies will trade at significant differences to their Net Asset Value (NAV).
We expect this difference will ordinarily be at a moderate premium of 5% to 15%
to account for the organizational value of public ownership. At the beginning of
1998, valuations were at or beyond the high end of this range. Today many
companies are trading at or below their NAVs.
NAV PREMIUMS/DISCOUNTS AT 12/97 AND 12/98
ADJUSTED EBIDTA CAP RATES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Sector NAV Premium/Discount Adj. EBIDTA
12/31/97 12/31/98 Cap Rate 12/98
<S> <C> <C> <C>
Hotel 2.0% -37.4% 10.8%
Diversified 27.4% -4.6% 8.1%
Universe 15.9% -10.7% 8.8%
Office/Industrial 18.9% -10.7% 8.7%
Self Storage 25.6% -6.0% 9.4%
Retail 18.9% -7.8% 9.0%
Residential 12.7% -0.2% 8.7%
- ---------------------------------------------------------------------
</TABLE>
Note: Adjusted EBIDTA (Earnings Before Interest, Depreciation, Taxes, and
Amortization -- and After Cap Ex and G&A Expense) is a proxy for the returns
received from property by a direct owner.
5
<PAGE>
PERSPECTIVE ON 1999
While the pain of 1998 will be remembered for a long time, conditions are
favorable and many companies are well positioned for a period of superior
relative performance:
. To date, the real estate industry has shown much more financial discipline
than in earlier markets. Development today requires far more capital and
pre-leasing than in the past; the public companies that have money are
coming to realize the need for consistent, sustainable earnings growth.
. With continuing capital constraints, the strongest and most liquid
companies will increase their advantage.
. The structural problems of 1998 appear to be behind us. It is unlikely that
new negative legislation or broad criticism of the industry will occur in
the next year or two.
. Almost all property sectors and regions are in a healthy equilibrium. While
there could be sporadic oversupply situations in cities like Seattle, Las
Vegas or Houston, the effects on occupancies and rents are expected to be
moderate and short lived.
. With investment sentiment negative and relative valuation at a historical
low, the prospect of further relative underperformance seems remote.
INVESTMENT STRATEGY
At year end the Fund's assets were allocated as follows:
<TABLE>
<CAPTION>
Mobile Diversified/ Factory Office/ Self-
Regional Malls Hotels Apartments Homes Other Outlets Industrial Retail Storage
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(3%) (13%) (14%) (2%) (20%) (3%) (34%) (5%) (6%)
</TABLE>
As we position the Fund's portfolio for 1999 and beyond, we continue to look at
the real estate companies as both collections of assets and as operating
entities with managements which can have a significant impact on the value of
these assets. With real estate markets now in equilibrium and access to capital
more restricted, relative performance becomes more closely aligned with existing
property performance and management operating capabilities and less driven by
the aggressive capital market and acquisition strategies which have been the
hallmark of many companies over the last three years.
We anticipate a moderating but still positive economy in 1999. We know that
there will be a time when the economy will go into recession and/or the broad
stock market will decline, and that these events will have some impact on the
operations of the REITs' properties and their ability to raise capital. In the
past, it has been these difficult times that have allowed the best companies to
position themselves for the best future growth.
6
<PAGE>
These anticipated conditions lead us to the following strategic focus:
. We are increasing our focus on the best managed, more conservatively
financed companies. Quality is cheaper today than it has been in several
years.
. We are generally avoiding companies with significant dependence on
acquisitions or access to equity capital to generate competitive returns.
We expect access to equity to remain fairly limited for the foreseeable
future.
. We prefer companies with strong growth potential from existing assets.
While we continue to invest in select companies with development
capabilities, the risk profile of development-oriented companies has
increased.
. We are increasing our investment in lower risk assets and markets. This
includes product types less vulnerable to a downturn in the economy (e.g.,
neighborhood shopping centers, net-lease owners, manufactured homes) and
markets with below average supply risk.
In general, we continue to find attractive investment opportunities in all
of the major property sectors. Based on current valuation levels, with the
exception of the lodging sector, the differences in valuations among the various
property sectors appear fairly modest.
We continue to have a bias in favor of the office and apartment sectors. Many of
the better office and apartment companies underperformed in 1998 and now appear
more attractive than usual. The retail and industrial companies had strong
relative performance in 1998 and now appear slightly less attractive.
While valuation levels are clearly cheapest in the lodging sector, we are taking
a cautious stance toward the sector due to its high risk. Our strategy is to
continue to focus on the companies owning upscale, full service hotels in the
CBDs.
With most sectors and regions in balance, our key criteria will be the ability
and expectations of individual companies, and relative valuations.
Although 1998 was a difficult year for holders of real estate stocks, we believe
that the period of relative underperformance of these stocks is near an end.
Going forward they should provide a haven of solid current return and consistent
earnings growth. We are positioning the Fund's investments to offer such a
haven, and we appreciate your interest and support.
Very truly yours,
/s/ William K. Morrill, Jr. /s/ Keith R. Pauley
William K. Morrill, Jr. Keith R. Pauley
President Executive Vice President
January 20, 1999
7
<PAGE>
LASALLE PARTNERS MASTER TRUST -- U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
Shares Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real Estate Securities -- 96.0%
Apartments -- 14.1%
Apartment Investment & Management Co. .................... 21,100 $ 784,656
Avalon Bay Communities, Inc. ............................. 49,888 1,708,663
Camden Property Trust .................................... 26,800 696,800
Irvine Apartment Communities, Inc. ....................... 8,100 258,188
Post Properties, Inc. .................................... 20,286 779,743
-----------
4,228,050
-----------
Diversified/Other -- 16.2%
Capital Trust* ........................................... 15,700 94,200
Catellus Development Corp.* .............................. 38,600 552,463
Commercial Net Lease Realty, Inc. ........................ 20,500 271,625
Corrections Corp. of America* ............................ 23,700 417,713
Entertainment Properties Trust ........................... 55,600 945,200
Forest City Enterprises, Inc. ............................ 6,800 178,500
Northstar Capital Investment Corp.* (a) (b) .............. 67,024 1,064,006
Vornado Operating Inc.* .................................. 1,685 13,585
Vornado Realty Trust ..................................... 38,700 1,306,125
-----------
4,843,417
-----------
Factory Outlets -- 2.9%
Chelsea GCA Realty, Inc. ................................. 24,600 876,375
-----------
Health Care-- 0.4%
Crestline Capital* ....................................... 7,430 108,663
-----------
Hotels -- 12.9%
Host Marriott Corp. ...................................... 74,300 1,026,269
Meristar Hospitality ..................................... 19,427 360,614
Meristar Hotels* ......................................... 11,800 30,975
Patriot American Hospitality, Inc. ....................... 73,899 443,394
Starwood Hotels & Resorts ................................ 52,300 1,186,556
Sunterra Resorts Inc.* ................................... 54,300 814,500
-----------
3,862,308
-----------
Mobile Homes -- 2.1%
Sun Communities, Inc. .................................... 17,800 619,663
-----------
Office / Industrial-- 33.4%
Beacon Capital Partners, Inc. (a) (b) .................... 37,500 $ 600,000
Boston Properties, Inc. .................................. 28,200 860,100
Crescent Real Estate ..................................... 17,900 411,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
LASALLE PARTNERS MASTER TRUST-- U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS-- CONTINUED
DECEMBER 31, 1998
Shares Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OFFICE / INDUSTRIAL -- CONTINUED
Duke Reality Investment, Inc. ............................ 25,900 602,175
Equity Office Properties Trust ........................... 67,588 1,622,112
First Industrial Realty Trust, Inc. ...................... 16,600 445,088
Kilroy Realty Corp. ...................................... 40,000 920,000
Mack-Cali Realty Corp. ................................... 49,000 1,512,875
PS Business Parks, Inc. .................................. 7,000 167,125
Reckson Associates Realty Corp. .......................... 30,400 674,500
Reckson Services Industries, Inc.* ....................... 14,592 60,192
Spieker Properties, Inc. ................................. 41,900 1,450,788
Weeks Corp. .............................................. 23,900 673,680
-----------
10,000,335
-----------
REGIONAL MALLS -- 2.9%
Rouse Co. ................................................ 32,000 880,000
-----------
RETAIL-- 5.0%
Developers Diversified Realty Corp. ...................... 36,900 654,975
JDN Realty Corp. ......................................... 39,200 845,250
-----------
1,500,225
-----------
SELF STORAGE -- 6.1%
Public Storage, Inc. ..................................... 34,600 936,363
Storage USA, Inc. ........................................ 27,300 882,131
-----------
1,818,494
-----------
Total Real Estate Securities (Cost $35,619,531) .......... 28,737,530
-----------
SHORT TERM INVESTMENTS -- 2.8%
Temporary Investment Fund, Inc.--TempCash Portfolio ...... 417,436 417,436
Temporary Investment Fund, Inc.-- TempFund Portfolio ..... 417,436 417,436
-----------
Total Short Term Investments (Cost $834,872) ............. 834,872
-----------
TOTAL INVESTMENTS (Cost -- $36,454,403)+ -- 98.8% ................................. 29,572,402
Other Assets in Excess of Liabilities -- 1.2% ..................................... $ 342,813
-----------
NET ASSETS -- 100.0% .............................................................. $29,915,215
===========
</TABLE>
________________
+ Cost for Federal income tax purposes is $36,384,208.
* Non-income producing security.
(a) Security valued at fair value as determined in good faith under procedures
established and monitored by the Board of Trustees. At December 31, 1998,
these securities represented 5.6% of net assets.
(b) Security exempt from registration under Rule 144A of Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
LASALLE PARTNERS MASTER TRUST -- U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income .................................................... $ 1,403,370
Interest income .................................................... 14,176
------------
Total Investment Income .................................... 1,417,546
------------
EXPENSES:
Advisory fees ...................................................... 166,972
Administration and accounting fees ................................. 72,098
Audit fees ......................................................... 26,253
Legal fees ......................................................... 23,255
Trustees fees ...................................................... 18,421
Amortization of deferred organizational costs ...................... 13,986
Custodian fees ..................................................... 8,517
Insurance expense .................................................. 5,650
Transfer agent fees ................................................ 4,500
Other expenses ..................................................... 4,085
------------
Total Expenses ............................................. 343,737
------------
Less: Fee waivers .................................................. (60,562)
------------
Net Expenses ............................................... 283,175
------------
NET INVESTMENT INCOME ...................................................... 1,134,371
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENT:
Net realized (loss) on investments ................................. (658,102)
Net change in unrealized (depreciation) on investments ............. (6,882,001)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENT TRANSACTIONS .............. (7,540,103)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ..................... $ (6,405,732)
============
</TABLE>
________________________
* Commencement of operations was March 30, 1998
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
LASALLE PARTNERS MASTER TRUST -- U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATIONS:
Net investment income .............................................. $ 1,134,371
Net realized (loss) on investments ................................. (658,102)
Net change in unrealized (depreciation) on investments ............. (6,882,001)
------------
Net (decrease) in net assets resulting from operations ............. (6,405,732)
------------
CAPITAL SHARE TRANSACTIONS:
Contributions ...................................................... 43,527,414
Withdrawals ........................................................ (7,306,467)
------------
Net increase in net assets resulting from capital share transactions 36,220,947
------------
Net increase in net assets ................................................. 29,815,215
NET ASSETS AT BEGINNING OF PERIOD .......................................... 100,000
------------
NET ASSETS AT END OF PERIOD ................................................ $ 29,915,215
============
</TABLE>
________________
* Commencement of operations was March 30, 1998
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
LASALLE PARTNERS MASTER TRUST -- U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period from
March 30, 1998* through December 31, 1998
-----------------------------------------
<S> <C>
Net assets, end of period (000's) .......................................... $ 29,915
Ratio of net expenses to average net assets (1) (2) ........................ 1.27%
Ratio of net investment income to average net assets (1) (3) ............... 5.10%
Portfolio turnover rate .................................................... 31%
</TABLE>
______________________
* Commencement of operations
(1) Annualized.
(2) The annualized expense ratio without waivers and reimbursements for the
period ended December 31, 1998 would have been 1.55% .
(3) The annualized net investment income ratio without waivers and
reimbursements for the period ended December 31, 1998 would have been
4.82%.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
LA SALLE PARTNERS MASTER TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
LaSalle Partners Master Trust (the "Trust"), a Delaware business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company currently offering one
portfolio: U.S. Real Estate Portfolio (the "Portfolio"). The Trust was organized
on December 29, 1997 and commenced operations on March 30, 1998. On that date,
the LaSalle U.S. Public Real Estate Securities Fund, L.P. and the LaSalle
Partners U.S. Real Estate Fund contributed assets with a value of $38,411,064
and $100,000, respectively, in exchange for beneficial interest in the
Portfolio. The Trust operates under a "master/feeder" structure where the feeder
funds invest substantially all of their investable assets in the Trust.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust in conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Trust in the
preparation of its financial statements. The preparation of financial statements
in accordance with generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
A) SECURITY VALUATION:
Portfolio securities traded on a national exchange on the valuation date are
valued at the last quoted sales price. Exchange traded securities for which
there have been no reported sales on the valuation date and securities traded
primarily in the over-the-counter market are valued at the last quoted bid
price. Securities or other assets for which market quotations are not readily
available are valued at their fair value determined in good faith under
procedures established and monitored by the Trust's Board of Trustees. These
procedures may include the use of an independent pricing service which
calculates prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to value from dealers; and
general market conditions. Proceeds resulting from the sale of these securities
may differ significantly from the fair value assigned by the Board of Trustees.
Debt obligations with maturities of 60 days or less are valued at amortized
cost.
B) FEDERAL INCOME TAXES:
The Trust will be classified as a partnership for federal income tax purposes.
Any interest, dividends and gains or losses of the Trust will be deemed to have
been "passed through" to the feeder funds. It is intended that the Portfolio
will be managed in such a way that an investor will be able to satisfy the
requirements of the Internal Revenue Code applicable to regulated investment
companies.
C) INVESTMENT INCOME AND SECURITY TRANSACTIONS:
Security transactions are accounted for on the date the securities are purchased
or sold. Costs used in determining realized gains and losses on the sale of
investment securities are those specific to securities sold. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on an accrual
basis. Discount and premium on securities purchased are amortized over the lives
of the respective securities. Expenses solely attributable to the Trust are
charged directly to the Trust, while expenses attributable to both the Trust and
a feeder fund are allocated among both.
13
<PAGE>
LA SALLE PARTNERS MASTER TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
D) DEFERRED ORGANIZATION COSTS:
The Trust has capitalized certain costs in connection with its organization. All
such costs are being amortized on a straight-line basis over a five-year period
beginning on the date of the commencement of operations.
NOTE 3-- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into an Investment Management Agreement with ABKB/LaSalle
Securities Limited known as LaSalle Partners Real Estate Securities (the
"Manager"). The Manager is entitled to a fee from the Portfolio, which is
accrued daily and payable monthly, at an annual rate of 0.75% of the Portfolio's
average daily net assets. For the period ended December 31, 1998, the Manager
voluntarily waived fees totalling $22,263. Certain officers and trustees of the
Trust are also affiliates of the Manager. No officer or trustee of the Trust who
is an officer, director, or shareholder of the Manager receives any compensation
from the Trust.
The Trust has entered into an Administration and Accounting Services Agreement
with PFPC Inc. (the "Administrator"), under which the Administrator provides
administration and accounting services to the Trust pursuant to the Agreement.
For the period ended December 31, 1998, the Administrator voluntarily waived
fees totalling $38,299.
NOTE 4 -- SECURITIES TRANSACTIONS
For the period ended December 31, 1998, purchases of portfolio securities (other
than short-term securities) were $9,216,589. Sales of portfolio securities were
$11,183,295.
NOTE 5 -- INVESTMENT TRANSACTIONS:
At December 31, 1998, gross unrealized appreciation and depreciation for federal
income tax purposes of investment securities for the Portfolio was as follows:
Gross Unrealized Appreciation........................ $ 78,693
Gross Unrealized Depreciation........................ (6,890,499)
------------
$ (6,811,806)
============
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Investors and Board of Trustees
of LaSalle Partners Master Trust:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the U.S. Real Estate Portfolio of LaSalle Partners Master Trust (the "Trust") at
December 31, 1998, the result of its operations, the changes in its net assets
and the financial highlights for the period March 30, 1998 (commencement of
operations) through December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 12, 1999
15
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment in LaSalle Partners Master Trust-- U.S. Real Estate Portfolio $ 103,935
Deferred organization costs ............................................ 90,305
Prepaid expenses ....................................................... 20,616
Receivable from Investment Manager ..................................... 4,175
---------
Total Assets ................................................... 219,031
---------
LIABILITIES:
Distribution payable to shareholders ................................... 317
Accrued expenses and other liabilities ................................. 20,080
---------
Total Liabilities .............................................. 20,397
---------
NET ASSETS ..................................................................... $ 198,634
=========
COMPOSITION OF NET ASSETS:
Capital Stock, par value $.01 per share, 100,000,000 shares authorized $ 256
Additional paid-in capital ........................................... 243,764
Accumulated net realized (loss) on investments ....................... (3,529)
Net unrealized (depreciation) on investments ......................... (41,857)
---------
$ 198,634
=========
NET ASSET VALUE PER SHARE:
Institutional Class: Net Assets ...................................... $ 153,794
Shares outstanding ................................................... 19,817
---------
Net Asset Value, Offering and Redemption Price per Share ............. $ 7.76
=========
Retail Class: Net Assets ............................................. $ 44,840
Shares outstanding ................................................... 5,769
---------
Net Asset Value, Offering and Redemption Price per Share ............. $ 7.77
---------
</TABLE>
16
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Investment Income allocated from LaSalle Partners Master Trust --
U.S. Real Estate Portfolio ......................................... $ 7,402
Expenses allocated from LaSalle Partners Master Trust --
U.S. Real Estate Portfolio ......................................... (1,582)
---------
Net Investment Income allocated from LaSalle Partners Master Trust --
U.S. Real Estate Portfolio ......................................... 5,820
---------
EXPENSES:
Transfer agent fees .................................................. 45,540
State registration fees .............................................. 33,124
Administration and accounting fees ................................... 27,322
Legal fees ........................................................... 23,255
Insurance fees ....................................................... 22,600
Directors fees ....................................................... 18,421
Amortization of organizational costs ................................. 16,012
Shareholders' reports ................................................ 6,527
Audit fees ........................................................... 4,923
Distribution fees-- Retail Class ..................................... 79
Other expenses ....................................................... 3,223
---------
Total Expenses ............................................... 201,026
---------
Less: Fee waivers .................................................... (36,431)
Expense reimbursements ......................................... (164,587)
---------
NET INVESTMENT INCOME ........................................................ 5,812
---------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS FROM LASALLE PARTNERS
MASTERS TRUST U.S. REAL ESTATE PORTFOLIO:
Net realized (loss) on investments ................................... (3,529)
Net change in unrealized (depreciation) on investments ............... (41,857)
---------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS ............................ (45,386)
---------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ....................... $ (39,574)
=========
</TABLE>
_____________________
* Commencement of operations was March 30, 1998
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income ....................................................... $ 5,812
Net realized (loss) on investments from LaSalle Partners Master Trust
U.S. Real Estate Portfolio ................................................ (3,529)
Change in unrealized (depreciation) of investments from LaSalle Partners
Master Trust U.S. Real Estate Portfolio ................................... (41,857)
---------
Net decrease in net assets resulting from operations ........................ (39,574)
---------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Institutional Class ......................................................... (4,261)
Retail Class ................................................................ (1,193)
---------
Total from net investment income ............................................ (5,454)
---------
From capital:
Institutional Class ......................................................... (338)
Retail Class ................................................................ (71)
---------
Total from capital .......................................................... (409)
---------
Total Distributions ......................................................... (5,863)
---------
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets resulting from capital share transactions ........ 144,071
---------
Total increase in net assets ................................................ 98,634
---------
Net assets at beginning of period ........................................... 100,000
---------
Net assets at end of period ................................................. $ 198,634
=========
</TABLE>
___________________
* Commencement of operations was March 30, 1998
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 30, 1998* THROUGH DECEMBER 31, 1998
------------------------------------------
Institutional Retail
Class Class
--------- ---------
<S> <C> <C>
Net asset value, beginning of period ........................... $ 10.00 $ 10.00
Increase/(Decrease) from operations:
Net investment income from operations .......................... 0.26 0.22
Net realized and unrealized (loss) on investments .............. (2.24) (2.23)
-------- ---------
Total from investment operations ............................... (1.98) (2.01)
Less Distributions:
Distributions from net investment income ....................... (0.24) (0.20)
Distributions from return of capital ........................... (0.02) (0.02)
--------- ---------
Total Distributions ............................................ (0.26) (0.22)
Net asset value, end of period ................................. $ 7.76 $ 7.77
========= =========
Total Return (2) ............................................... (19.92)% (20.22)%
Ratios/Supplementary Data:
Net assets, end of period (000) ................................ $ 154 $ 45
Ratio of net expenses to average net assets (1) (3) (5) ........ 1.05% 1.45%
Ratio of net investment income to average net assets (1) (4) (5) 4.28% 3.93%
Portfolio turnover rate on LaSalle Partners Master Trust
U.S. Real Estate Portfolio ................................... 31% 31%
</TABLE>
__________________
* Commencement of operations.
(1) Annualized.
(2) Not annualized.
(3) The annualized expense ratio without waivers and reimbursements for the
period ended December 31, 1998 would have been 113.17% and 143.31% for the
Institutional and Retail Classes, respectively.
(4) The annualized net investment income ratio without waivers and
reimbursements for the period ended December 31, 1998 would have been
(106.79)% and (136.93)% for the Institutional and Retail Classes,
respectively.
(5) Expense and net investment income ratios represent the combined ratios for
the LaSalle Partners U.S. Real Estate Fund and its pro rata share of the
LaSalle Partners Masters Trust U.S. Real Estate Portfolio's expenses and
income.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
LaSalle Partners Funds, Inc. (the "Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company currently offering one
series: LaSalle Partners U.S. Real Estate Fund (the "Fund"). The Company was
organized on December 29, 1997 and commenced operations on March 30, 1998. The
Fund invests solely in the U.S. Real Estate Portfolio of the LaSalle Partners
Master Trust (the "Portfolio"). The value of the Fund's investment in the
Portfolio, included in the accompanying Statement of Assets and Liabilities,
reflects the Fund's beneficial interest in the net assets of the Portfolio. At
December 31, 1998 the Fund held a 0.3% interest in the Portfolio. The financial
statements of the Portfolio are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting principles
may require management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A) SECURITY VALUATIONS:
The value of the Fund's beneficial interest in the Portfolio is determined by
multiplying the net assets of the Portfolio by the Fund's proportionate share of
the Portfolio. Valuation of securities held by the Portfolio is discussed in
Note 2(a) of the financial statements of LaSalle Partners Master Trust.
B) FEDERAL INCOME TAXES:
It is the Fund's intention to qualify as a regulated investment company under
the Internal Revenue Code and distribute all of its taxable income, including
any net realized gains to shareholders. Accordingly, no provision for federal
taxes is required in the financial statements.
C) INVESTMENT INCOME AND SECURITY TRANSACTIONS:
The Fund records its proportionate share of the Portfolio's net investment
income, realized and unrealized gains and losses. The Fund receives daily
allocations of investment operations from the Portfolio based on its beneficial
interest in the Portfolio. d) Deferred Organization Expenses: The fund has
capitalized costs in connection with its organization. All such costs are being
amortized on a straight-line basis over a five-year period beginning on the date
of the commencement of operations.
E) DISTRIBUTIONS TO SHAREHOLDERS:
Dividends, if any, from net investment income are declared and paid quarterly.
Net realized gains from investment transactions, if any, are distributed at
least annually. Distributions to shareholders are recorded on the ex-dividend
date.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
The amount of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or net realized gains. To the extent they exceed
net investment income and net realized capital gains for tax purposes, they are
reported as distributions of capital.
As of December 31, 1998, a reclassification of $51 has been made between the
accumulated undistributed net investment income account and paid-in-capital.
F) MULTIPLE CLASSES OF SHARES:
The Fund is divided into Institutional and Retail Class shares. The Retail Class
of shares is separately charged its distribution and shareholder services fees.
Income and expenses that are not specific to a particular class, and realized
and unrealized gains and losses, are allocated to each class based on the daily
value of the shares of each class in relation to the total value of the Fund.
Dividends are declared separately for each class and the per-share amounts
reflect differences in class-specific expenses.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
LaSalle Partners Real Estate Securities (the "Manager") has voluntarily agreed
to reimburse the operating expenses in excess of 1.45% and 1.05% for the Retail
and Institutional Classes respectively. For the period ended December 31, 1998,
the Manager reimbursed the Fund $164,587. Certain officers and directors of the
Company are also officers, directors, and shareholders of the Manager. No
officer or director of the Company who is an affiliate of the Manager receives
any compensation from the Fund.
The Company has entered into an Administration Agreement with PFPC Inc. (the
"Administrator"), whereby the Administrator provides certain fund accounting and
administrative services to the Fund. For the period ended December 31, 1998, the
Administrator voluntarily waived $36,431.
Funds Distributor, Inc. (the "Distributor") serves as the principal underwriter
and distributor of the Fund. The Company has adopted a distribution plan for the
Retail Class of the Fund pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The plan provides for the payment of a distribution fee from the assets
of the Retail Class for activities primarily intended to result in the sale of
Retail Class shares. Distribution fees paid under the plan may not exceed 0.75%
annually of the average daily net assets of the Retail Class. The Board of
Directors of the Company has authorized payment of an annual distribution fee of
0.25%. For the period ended December 31, 1998 there was $79 accrued in
distribution fees, but no payments made under the distribution plan during 1998.
Under a shareholder services plan adopted for the Retail Class, the Fund may pay
shareholder services fees to financial services firms and others who have
entered into shareholder services agreements with the Company.
21
<PAGE>
LASALLE PARTNERS FUNDS, INC. -- LASALLE PARTNERS U.S. REAL ESTATE FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
- --------------------------------------------------------------------------------
These fees are paid for services provided to Retail Class shareholders,
including shareholder assistance and communications, and maintenance of
shareholder accounts. Shareholder services fees paid under the plan may not
exceed 0.25% annually of the average net assets of the Retail Class attributable
to applicable shareholder accounts. The Board of Directors of the Company has
authorized payment of an annual shareholder services fee of 0.15% of average
daily net assets. For the period ended December 31, 1998, there was $47 accrued
in shareholder services fees, but no payments made under the shareholder
services plan.
NOTE 4 -- SHARE CAPITAL:
The Fund is authorized to issue up to 50 million Retail Class shares and 50
million Institutional Class shares with a par value of $.01 per share. At
December 31, 1998, LaSalle Partners Co-Investment, Inc. owned 39.1% of the
Fund's outstanding shares. Transactions in shares of capital stock, for the
period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Institutional Class Retail Class
------------------- -------------------
Shares Amount Shares Amount
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares Issued ............. 11,576 $105,054 5,613 $ 55,008
Shares reinvested ......... 563 4,599 57 472
Shares redeemed ........... (2,223) (21,054) (1) (8)
------ -------- ----- --------
Net increase .............. 9,916 $ 88,599 5,669 $ 55,472
------ -------- ----- --------
</TABLE>
NOTE 5 -- CAPITAL LOSS CARRYOVERS:
The Fund has a net tax-basis capital loss carryforward of $3,529 as of December
31, 1998, which may be applied against any realized net taxable capital gain in
subsequent years until fully utilized or until the expiration date, whichever
occurs first. The carryover expires in 2006.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of LaSalle Partners Funds, Inc.:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the LaSalle Partners U.S. Real Estate Fund of LaSalle Partners Fund, Inc. (the
"Company") at December 31, 1998, the result of its operations, the changes in
its net assets and the financial highlights for the period March 30, 1998
(commencement of operations) through December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 12, 1999
23
<PAGE>
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by a Fund prospectus containing more information about the Fund,
including expenses. Please read the prospectus carefully before you invest or
send your money.
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FDIC, FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
